Why is Assam “poor” ?

Being a proud Assamese, my heart weeps in grief but I have to accept the statement that indeed Assam is economically poor. But it is equally important to understand what cripples the Assamese economy.

The economy of Assam is undoubtedly in a struggling stage. But is it due to lack of Central Government support? Infact no. Assam including other North Eastern states had received “special category” status under 13th Finance Commission. There is a special DoNER ministry for the development of NE region including Assam. Every policy framework and government programme has special incentives and aid for Assam. Yet it is “poor”. Thus my question – Why?

Surprisingly too much support and grants from the centre is infact a reason for its poor economy and struggling state taxation systems. This has been discussed in details in Economic Survey 2016–17. An extract from the survey about too much aid says-

One hypothesis is that aid perpetuates resource dependency, in the sense that since revenues flow in from outside, recipient states may fail to develop their own tax bases or their institutions more generally. And it is institutions, tax revenues, and incentives that have been found to be critical for growth, much more than overall resource availability. Many economists, including Brautigam and Knack (2004), Azam, Devarajan, and O’Connell (1997), and Adam and O’Connell (1999) document such effects.

Assam since independence has been heavily dependent on external aid from the Centre for its financial resources. Now that the Central government is trying to rationalize its expenditures in order to reduce fiscal deficits , the special aids have been limited and thus the gray areas of the unsustainable economic model of Assam has surfaced.

One may also argue that Assam is rich in resources including oil, petroleum, tea etc , then why is it that we are still “poor”? The Economic Survey answers this issue in the following paragraphs

“Another potential downside of aid is that it could trigger “Dutch disease”, named after the impact that discovery of natural gas in the North Sea had on the domestic economy in the Netherlands. This windfall caused the real exchange rate to appreciate as the extra income was spent domestically, pushing up the price of non tradeables, such as services geared to the local economy. The higher prices for services then eroded profitability in export and import-competing industries, de-industrialising the economy, with the share of manufacturing in the economy falling.”

“It has become clear that economies with abundant natural resources have actually tended to grow less rapidly than resource scarce economies. Economic geographer Richard Auty coined the phrase “resource curse” in 1993 to describe this phenomenon”

The negative association between resource abundance and growth poses a conceptual puzzle. In the literature, three possible channels of causation have been identified. First, the exploitation of natural resources generates rents, which lead to rapacious rent-seeking (the voracity effect) and increased corruption. Second, natural resource ownership exposes countries to commodity price volatility, which can destabilize GDP growth. Finally, natural resource ownership – like foreign aid — makes countries susceptible to “Dutch Disease”.

This suggests that there is a need to improve governance, to ensure a more productive use of the resources, especially in the states like Assam that are relying on them.

I would not deny the existence of public sector corruption and inefficient state government machinery but the reasons for Assam’s economic backwardness is structural and requires deep & rigorous academic level economic analysis. This is where the major hurdle develops. Most of Assam’s state ministers, legislators and politicians lack experience of academic economic knowledge. Hence despite their will for development, they often end up with unfruitful populist moves and decisions. The bureaucracy’s expertise is too generalist and not suitable for an expert level analysis.

My personnel observations find a lack of young intellectuals in academic circles of Assam , who can act as effective critic of unsustainable state economic policies. No doubt Assamese youths are part of rebellious student unions but at most times these “student unions” are highly politicized , follow populist ideologies and lack intellectualism.

Thus the burden of making Assam “rich” falls upon it’s youth. We must learn what is true, to do what is right. Times will definitely change!

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